Safekeeping Property · 2-8% of the exam
20.3.3Third-party claims to client funds (Rule 1.15(e))
On this page
- Rule 1.15(e) — Third-party claims
Why
Lienholders, prior attorneys, and medical creditors regularly assert claims to funds a lawyer holds. If the lawyer pays everything to the client over a known valid claim, the third party may have no practical recourse. The lawyer is the last point at which such a claim can still be protected; money that reaches the client is often past recovering.
Plain English
A third party may hold a lawful claim against specific funds or property in your hands — a client's creditor with a lien on a personal-injury recovery is Comment [4]'s own example. Where applicable law gives you a duty to protect such a claim against wrongful interference by the client, and the claim is not frivolous under applicable law, you must refuse to surrender the property to the client until the claims are resolved. The client's instruction to disregard the claim doesn't override that duty.
A frivolous claim does not require withholding. The undisputed portion still goes to the client promptly. You may not decide the fight yourself, but where there are substantial grounds for dispute as to who is entitled to the funds you may file an action and let a court resolve it.
Rule
Rule 1.15(e) — Third-party claims
Comment [4]: third parties may have lawful claims against specific funds or other property in a lawyer's custody, such as a client's creditor who has a lien on funds recovered in a personal-injury action.
Comment [4]: a lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client. In such cases, when the third-party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client until the claims are resolved.
The disputed portion must remain in the client trust account until the third-party claim is resolved.
Comment [4]: the lawyer should not unilaterally assume to arbitrate the dispute between client and third party, but where there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute.
The undisputed portion must be delivered to the client promptly.
A frivolous claim does not require withholding.
The client's denial of the third-party claim does not override a duty applicable law places on the lawyer to protect a claim that is not frivolous.
Example 1
Ex. 1
A personal-injury settlement produces $80,000 for a client. Before distribution, a treating physician sends the lawyer a formal letter asserting a $12,000 lien for unpaid expert evaluation services. The client instructs the lawyer to pay all $80,000 directly to the client and to disregard the physician's letter.
The lawyer cannot comply. The physician asserts a lawful lien against the specific settlement funds the lawyer holds — Comment [4]'s own example — and the claim is not frivolous under applicable law, so the lawyer must refuse to surrender that portion to the client. The $12,000 must remain in trust until the dispute resolves. The remaining $68,000 must be delivered to the client promptly. The client's instruction to ignore the letter doesn't discharge the lawyer's duty. Anchor the analysis to the physician's letter rather than to the client's view of it.
Trap
Tip
Questions · 1
Q 01ch20-e10
Question 1 of 1 · Rule 1.15(e)
Attorney settled Client's personal-injury claim for one hundred ten thousand dollars and deposited the money into the client trust account. Before any distribution, a rehabilitation clinic that had treated Client sent Attorney written notice of a lien on the recovery for nine thousand dollars in unpaid charges, attaching the assignment Client had signed. Attorney read the papers and concluded that the lien was good under the law of the state and that the clinic's claim was in no way frivolous. Client then told Attorney that the clinic had overcharged, that the lien should be ignored, and that the entire one hundred ten thousand dollars should be paid over at once. May Attorney pay the entire sum to Client as instructed?
Keys 1 to 4 choose.